Chain of Greece Events and its Aftermath

Start of Greek Debt Crisis in Late 2009

Greece crisis was assumed to be triggered by Global Recession of 2008, but the root cause for its eruption in was a combination of structural weaknesses in the Greek economy along with a decade-long pre-existence of overly high structural deficits and high debt-to-GDP levels. This led to a crisis of confidence, indicated by a widening of bond yield spreads and the cost of risk insurance on credit default swaps compared to the other Eurozone countries - Germany in particular.

Troika Came to Greece’s Rescue in Mid 2010

The European Commission, European Central Bank (ECB) and International Monetary Fund (IMF), later nicknamed the ‘Troika’, responded to the crisis by launching a bailout program for Greece. A total of Euro240 bn was given in 2 tranches to the Greece government in return for agreements on implementation of austerity measures, structural reforms, and privatization of government assets.

Election of Syriza government led to stalled talks on Bailout package

Syriza won the election based on its anti-austerity campaign. However, their strong stand against the measures agreed to in the bailout package has delayed the deployment of the 3rd tranch of the bailout package of Euro8.2bn.

New Developments in last 2 days increase the Uncertainty Further

Greece`s prime minister has called a referendum on 5 July, 2015 for voters to decide whether to accept a bailout deal offered by international creditors. But, the IMF has so far, not extend the deadline for the repayment of Euro 1.6bn that is due on 30th June. Hence, if this deadline is not extended, it will result in technical default by Greece. The ECB has also maintained its cap on the ELA (Emergency Lending Assistance) it has been providing to Greece at Euro 89 bn. Hence to prevent a run on the banks Greece has decided to keep banks shut till the referendum. Capital controls have also been imposed, restricting the amount withdrawn from ATMs at 60 Euro per day, per person.

Source: Edelweiss